Post office tax saving schemes are reliable and risk-free investment tools that assure investors of a secure return. Operated by post offices all over the country, these schemes are open to every Indian citizen for investment. These tax saving schemes offer income tax benefits as per different sections of the Income Tax Act, 1961.
Types of Post Office Saving Schemes for Tax Benefits
Post office tax saving scheme comprises different plans like Public Provident Fund, Sukanya Samriddhi Account, National Savings Certificate, Senior Citizen Savings Scheme (SCSS), Post Office Savings Account and 5-year Time Deposit. Take a detailed look at these schemes.
Public Provident Fund (PPF)
Individuals can open only one PPF account in their name, and any provision for a joint account does not exist. Nomination facilities are available, and account holders can transfer their account from one post office to another. Other features are:
- It comes with a 15-year tenure.
- Investors have to make a minimum deposit of Rs. 500 per year, failing which the account is discontinued. The maximum deposit is capped at Rs. 1.5 Lakh in a single financial year.
- The maturity period for the scheme is 15 years and investors can extend it further in 5-year blocks.
- Individuals can withdraw funds only after 5 years, which is subjected to conditions like life-threatening disease, higher education and change of residence. However, individuals can make a partial withdrawal after completing 7 years and can avail a loan after 4 years.
- Deposits made under this scheme are tax-exempted under section 80C of the Income Tax Act. Additionally, the interest earned is completely tax-free.
- Investors should remember that interest pay-out facilities are not available for this account.
- From 01.07.2019, investors will earn interest at the rate of 7.9% per annum on their investments.
Sukanya Samriddhi Account
Operated under Sukanya Samriddhi Yojana, this is another of the post office tax saving schemes under 80C. A legal guardian can open this account for his/her girl child, and only one account is permitted for one child with a maximum of two accounts in a family. Other features are,
- This account can be opened for girls below 10 years.
- This scheme has a tenure of 21 years irrespective of the girl’s age at the time of account opening. For instance, if a girl is 7 years at the time of account opening, that account will mature when that girl reaches 28 years of age.
- Individuals have to make deposits for 15 years and failing to do so will discontinue the account. They can revive it by paying Rs. 50 per year as penalty along with minimum deposit amount for that year.
- The minimum amount of yearly deposit here is Rs. 50 and the maximum is Rs. 1.5 Lakh.
- Premature closure is allowed on the occasion of account holder’s marriage, but she has to reach a minimum 18 years of age. Apart from that, after attaining 18 years, an account holder can make partial withdrawals (up to 50%). However, in the case of a medical emergency, premature withdrawal is allowed provided the investment has been made for a minimum of 5 years.
- Investments made under this post office tax saving scheme qualify for tax benefits under section 80C.
- From 01.07.2019, interest is calculated on investments under this account at 8.4% annually.
National Savings Certificate (NSC)
Investing in this post office saving scheme for tax benefit requires individuals to pay the entire investment amount at once. They will receive the total corpus, i.e. principal plus interest at the time of maturity. Other features are,
- This scheme has a tenure of 5 years.
- The minimum amount of investment is Rs. 1000 and further in multiples of Rs. 100.
- This certificate can be purchased by an adult, jointly by 3 adults, minors above 10years, an adult on behalf of a minor and a guardian on behalf of a person of unsound mind.
- The total interest accumulated at the maturity and withdrawal is taxable. However, as the annual interest is reinvested in the scheme for the first four years, it is deemed to be a separate investment and qualify for tax deduction under section 80C.
- Individuals can transfer their certificate to another, but they can do so only once during the entire tenure.
- From 01.07.2019, interest is earned at the rate of 7.9% per annum under this post office tax saving scheme.
Senior Citizen Savings Scheme (SCSS)
Individuals over the age of 60 are eligible to invest in SCSS. Also, individuals over the age of 55 years and under 60 years and have retired, or taken VRS can invest in this scheme. Other features are:
- The tenure of this investment is 5 years.
- Depositors can opt for a joint account with their spouse.
- Investors can open multiple accounts, but the total amount should not go above the maximum capped investment of Rs. 15 Lakh.
- Investors can close their account before maturity, but they have to pay penalties. If they close it before 1 year, no interest will be paid. In case interest has already been paid, it will be retracted. After one year, 1.5% of the deposit will be deducted as a penalty, and after 2 years, an investor will be penalised with 1% of the deposit.
- After maturity, the investor can extend this post office tax saving scheme scheme’s tenure for 3 years.
- This scheme qualifies for tax deduction under section 80C of the Income Tax Act. However, TDS is applicable if the interest amount exceeds Rs. 40,000.
- From 01.07.2019, investors can earn interest at the rate of 8.6% under this scheme.
Post Office Time Deposit (TD)
It is one of the prominent post office schemes for tax exemption. This plan is a lot like a bank fixed deposit. Investors can make deposits of different tenure like 1, 2, 3 and 5 years. Other features are-
- The maximum tenure here is 5 years, and any number of such deposits can be made in one or more post offices.
- The minimum investment amount in time deposit is Rs. 1,000, and there is no upper limit to it. However, the tax benefit is limited to Rs. 1.5 Lakh.
- Interest earned on this deposit is taxable under section 80C only if it is a five-year time deposit. Otherwise, it is taxable.
- Investors cannot en-cash their TD before 6 months. For premature withdrawals between 6 and 12 months, Post Office Savings Scheme interest rates are applicable.
The applicable interest rates on time deposit options from 1.07.2019 are as follows.
|Period of Investment||Interest Rate Applicable|
A Comparative Study of Post Office Schemes for Tax Exemption
|Post Office Tax Saving Schemes||Tenure||Interest Rate||Tax Benefit|
|Public Provident Fund (PPF)||15 years||7.9%||Yes||Yes||Yes|
|Sukanya Samriddhi Yojana (SSY)||21 years||8.4%||Yes||Yes||Yes|
|National Savings Certificate (NSC)||5 years||7.9%||Yes||Yes||No|
|Senior Citizen Savings Scheme (SCSS)||5 years||8.6%||Yes||No||No|
|Post Office Time Deposit||5 years||7.7%||Yes||No||No|
What are the Overall Advantages of these Schemes?
- Easy investment: India Post has branches all around the country, which makes it easier for people even in the remote areas of the country to make investments.
- Secured return: These post office tax saving schemes are free from market risks and safe to invest in.
- Attractive interest rates: The interest rates on these schemes range from 4% to 9%.
- Simple application procedure: The application or enrolment procedures of these schemes are simple and easy to follow.
- Minimum deposit: Post office schemes allow individuals to start an investment with as low as Rs.20. Plus, most of these schemes come with no upward limit to investments.
How to Apply for Tax Saving Schemes in the Post office?
Application forms for most of the post office tax saving schemes are available online at India Post’s official website. Download the respective application form from the India Post website, or you can visit your nearest post office to avail a form. Duly fill-up the form, submit with KYC documents and deposit the required amount to the post office.
Who Should Apply for the Post Office Tax Saving Schemes?
Individuals looking for investment options that meet the following requirements find these post office tax saving schemes as their ideal choice for corpus growth.
- Offer assured return at the time of maturity.
- Are not susceptible to market fluctuations.
- Help them save substantially on income tax.
- And, carry no risk to the principal amount invested.
- Are online facilities available in post offices for these schemes?
Yes, India Post has upgraded its services and investors can now access their savings/investment accounts online.
- Are there any market-related risks associated with these schemes?
No, there are no market-related risks associated with these post office tax saving schemes as the Government of India backs them up.
- Can I invest in these tax saving plans at any post offices throughout the country?
Yes, you can invest in any schemes that are tax saving in post offices near you.